Professional Documents
Culture Documents
Good Governance
Justice and International Mission Unit
Synod of Victoria and Tasmania
Uniting Church in Australia
2008
The Uniting Church Centre
130 Little Collins Street
Melbourne, Victoria
Australia 3000
jim@victas.uca.org.au
http://jim.victas.uca.org.au
Phone: +61-3-9251 5271
Facsimile: +61-3-9251 5241
From Corruption to
Good Governance
March 2008
z
This paper by the Justice and International Mission (JIM) Unit, Uniting Church in
Australia, Synod of Victoria and Tasmania contributes to the current debate about
increasing overseas aid to developing countries. The JIM Unit is a member of the
Micah Challenge campaign
Authors:
Dr Mark Zirnsak, Director, Justice and International Mission Unit
Ms Kerryn Clarke, Social Justice Offcer
Ms Annie Feith, Social Justice Offcer
Editors
Bessy Andriotis, UnitingCare Victoria and Tasmania
Cath James, Environment Project Offcer
Typesetting and design
Jesse Cain
Acknowledgement
The Justice and International Mission Unit would like to thank Ben Thurley of
TEAR Australia for examples of good governance at the local level in developing
countries and to Amanda Jackson of Micah Challenge for providing comments on
the draft of the report.
Executive Summary 6
Why should Australia be active in curbing corruption?
The role of wealthy countries in corruption
Defnitions
The role of human rights in good governance
Models of success
What attempts are being made internationally to deal with these problems?
Conclusion
Summary 8
Why should Australia be active in curbing corruption?
The role of international aid
Structure of the report
The role of human rights in good governance
Models of success
Australian Catholic Bishops Conference
The role of wealthy countries in corruption
What attempts are being made internationally to deal with these problems?
How does Australia perform in dealing with corruption?
OECD assessment of Australia
Summary of Australias performance
Conclusion
Recommendations on what Australia could do to combat corruption globally 18
Introduction 20
Good governance and corruption 22
2.1 Participation, equality and inclusion
2.2. Rule of law
2.3. Transparency and accountability
2.4. Effciency and effectiveness
2.5. Defning corruption
Theology of Corruption and Good Governance 24
Models of transition from corruption to good governance 26
4.1 Fighting corruption needs funding
4.2 Need to build demand for good governance
4.3 Integrating traditional governance with liberal democratic methods of governance
4.4 Good governance and respect for human rights
4.5 One size does not ft all
4.6 Examples of successful good governance projects and actions
4.7 Conclusion
Aspects of the global fnancial system that encourage corruption in developing
countries 33
5.1 Wealthy country bodies paying bribes
5.2 Tax havens and tax competition
5.3 Recovering looted funds from western nation bank accounts
5.4 Corruption in lending
5.5 Benefting from products obtained with the involvement of corruption
IabIe cf Ccntents
q
5.6 Corruption and multilateral development bank loans
5.7 Asian Development Bank: accountability and transparency?
What attempts are being made to deal with corruption? 43
6.1 UN Convention Against Corruption
6.2 OECD Anti-bribery Convention
6.3 Partnering Against Corruption Principles for Countering Bribery (PACI) Principles
6.4 Extractive Industries Transparency Initiative
6.5 The Equator Principles
6.6 Publish What You Pay and Publish What You Lend
6.7 The APEC Code of Conduct for Business
6.8 Actions against tax injustice
6.9 Stolen Asset Recovery (StAR) Initiative
6.10 International collaboration to deal with money laundering
How does Australia perform in dealing with corruption? 48
7.1 The Financial Action Task Forces assessment of Australia
7.2 OECD assessment of Australia
7.3 Australian Wheat Board bribery scandal
7.4 Recovery of funds stolen through corruption
7.5 Australian efforts to deal with tax havens and tax avoidance and evasion
7.6 Corruption under the occupation forces in Iraq
7.7 Allegations of Australian bodies benefting from corruption
7.8 Operation Wickenby
7.9 Australia leading by example
7.10 Dealing with imports produced with the involvement of corruption
7.11 AusAIDs approach to good governance
7.12 Tackling corruption for growth and development policy
7.13 Building Demand for Better Governance program
Conclusion 60
References 63
6
Why should Australia be active in
curbing corruption?
Corruption hurts countries, communities and
individuals. It is a threat to the economic stability and
security of countries whose resources have been
stolen or diverted. When a countrys health budget
is stolen, clinics are left without the medications they
need, hospitals are left without equipment, doctors
are left unpaid, and babies are not immunised. In
the words of Australias former Minister for Foreign
Affairs, The Hon. Alexander Downer, It is the poor
who suffer if funds are diverted through corruption.
The role of wealthy countries in
corruption
The relationship between aid and development
is complex and corruption and poverty are key
factors. Some have tried to argue that governments
in developing countries are corrupt and therefore
overseas aid is wasted or used to prop up such
governments.
One of the key factors often missing from the debate
is the role of wealthy countries. Some wealthy
countries can be seen to actively foster corruption,
reward it and seek to beneft from it. They do this
through:
providing tax havens to allow corrupt companies
and individuals to avoid paying their fair share of
tax;
allowing a whole industry of accountants, lawyers
and bankers to operate to assist rich companies
and individuals in avoiding paying their fair share
of tax;
lax banking laws that allow for money laundering
of funds stolen through corruption;
failing to assist developing countries in recovering
funds stolen through corruption that are then
deposited into investments in wealthy countries;
the failure of laws to deal severely enough
with bribery and, in some cases, even allowing
companies to claim bribes as tax deductions; and
1.
2.
3.
4.
5.
making loans to corrupt governments for
unproductive purposes, saddling developing
country communities with the repayments of
debts from which they have had no beneft.
Defnitions
Anti-corruption organisation Transparency
International has defned corruption as the misuse of
entrusted power for private beneft.
The Tax Justice Network has suggested that a
possible broader defnition for corruption would be
an activity which undermines public confdence in
the integrity of the rules, systems and institutions that
govern society is corrupt.
The role of human rights in good
governance
Effective promotion of good governance and
challenging corruption requires respect for basic
human rights. Corruption often fourishes in an
environment where basic human rights are violated.
The Australian Governments support for the
promotion and protection of human rights globally has
been mixed.
Models of success
Whilst there is no one model that will ft all
circumstances, there are some universally applicable
conditions that offer a society protection from
corruption - political and economic stability, strong
social infrastructures, respected institutions,
functioning systems of accountability and
transparency, and a relatively narrow equality gap.
Currently, donor funds for good governance programs
are largely directed to strengthening law and order
institutions, building national security, reforming
public sector administration and economic capacity
building. The majority of good governance projects
are not directed at the community level.
However, for a culture of good governance to
develop, there is a need to build demand for it within
the general community. Good governance requires
6.
Fxecutive $ummary
rights;
A global effort to address tax competition, tax
havens and tax evasion;
Wealthy countries being willing to return funds
looted from developing countries;
Wealthy countries being willing to punish
bribery by companies and citizens that
operate from their country;
Governments of wealthy countries introducing
measures to prevent the importation of goods
produced through corruption, such as illegally
logged timber; and
A willingness to cancel odious debts, to
discourage those that would make corrupt
loans.
The Australian Government has made signifcant
efforts to assist in addressing corruption in developing
countries, including tackling the role that companies
from developed countries can play in fostering and
benefting from corruption in these countries. The
Australian Government has made commendable
efforts to tighten up domestic law to prevent money
laundering and fnancing of terrorism.
However, it remains to be seen in practice if the
steps taken are suffcient to prevent Australians from
participating in and benefting from corruption in
developing countries and then being able to keep
their ill-gotten gains in Australia.
Australias aid program also contains a number of
positive and well-thought through elements to combat
corruption and promote good governance in countries
that receive aid from Australia.
Regrettably, there are black marks on Australias
commitment to dealing with corruption, with Iraq
being the most prominent recent example. The
Australian Government appears to have largely looked
the other way with regard to many cases of alleged
human rights abuse in Iraq committed by US-led
forces. It also failed to take much action as Iraqis
were cheated out of billions of dollars of oil revenue
by mismanagement and corruption within the US-led
Coalition Provisional Authority.
Australia could also be doing more at the global level
to address tax competition, tax havens, tax evasion,
odious debts, and the promotion of international
standards to combat corruption and promote good
governance.
8
$ummary
Why should Australia be active in
curbing corruption?
Corruption hurts countries, communities and
individuals. It is a threat to the economic stability and
security of countries whose resources have been
stolen or diverted. When a countrys health budget
is stolen, clinics are left without the medications they
need, hospitals are left without equipment, doctors
are left unpaid, and babies are not immunised. In
the words of Australias former Minister for Foreign
Affairs, The Hon. Alexander Downer, It is the poor
who suffer if funds are diverted through corruption.
Curbing corruption is part of the means to creating a
more accountable, effcient and effective government.
It also allows for development that assists those in
poverty. Anti-corruption measures should focus on a
fairer distribution of resources for all in society.
Donor countries, including Australia, cannot expect
signifcant change in the short term. A long term
approach is needed.
The role of international aid
The relationship between aid and development
is complex and corruption and poverty are key
factors. Some have tried to argue that governments
in developing countries are corrupt and therefore
overseas aid is wasted or used to prop up such
governments.
In reality, without suffcient aid, poverty increases.
Poverty then encourages corruption and corruption
in turn undermines efforts to address poverty. This
cycle is not broken by withholding fnancial assistance
to impoverished communities. Instead, breaking the
cycle requires a more sophisticated approach to shift
a culture of corruption to one of good governance.
One of the key factors often missing from the debate
is the role of wealthy countries. Some wealthy
countries can be seen to actively foster corruption,
reward it and seek to beneft from it. They do this
through:
providing tax havens to allow corrupt companies 1.
and individuals to avoid paying their fair share of
tax;
allowing a whole industry of accountants, lawyers
and bankers to operate to assist rich companies
and individuals in avoiding paying their fair share
of tax;
lax banking laws that allow for money laundering
of funds stolen through corruption;
failing to assist developing countries in recovering
funds stolen through corruption that are then
deposited into investments in wealthy countries;
the failure of laws to deal severely enough
with bribery and, in some cases, even allowing
companies to claim bribes as tax deductions; and
making loans to corrupt governments for
unproductive purposes, saddling developing
country communities with the repayments of
debts from which they have had no beneft.
Structure of the report
The report is organised into sections that examine:
Defnitions around good governance and
corruption;
Lessons about what is needed to change a
society from one where corruption fourishes
to one in which good governance exists and
the opportunities for corruption are minimised.
This section also provides examples of where
corruption has been dealt with successfully and
good governance systems have been installed.
The ways that wealthy countries can foster,
reward and beneft from corruption.
International measures being pursued to address
corruption as a global problem.
Australias performance in relation to corruption.
This section looks at how Australia rates in
dealing with corruption; ways it seeks to address
corruption globally, and what inadequacies exist
and where is further improvement needed?
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.
The needs of the poor are more important than the wants of the rich;
the freedom of the dominated is more important than the liberty of the powerful, and;
enabling marginalised groups to participate is more important than retaining a system
which excludes them.
The needs of the poor are more important than the wants of the rich;
the freedom of the dominated is more important than the liberty of the powerful, and;
enabling marginalised groups to participate is more important than retaining a system
which excludes them.
Australian Catholic Bishops Conference
Defnitions
Good Governance is defned by the United Nations
Economic and Social Commission for Asia and the
Pacifc as:
participatory, consensus oriented, accountable,
transparent, responsive, effective and effcient,
equitable and inclusive and follows the rule of
law. It assures that corruption is minimized,
the views of minorities are taken into account
and that the voices of the most vulnerable in
society are heard in decision-making. It is also
responsive to the present and future needs of
society.
Anti-corruption organisation Transparency
International has defned corruption as the misuse of
entrusted power for private beneft.
The Tax Justice Network has suggested that a
possible broader defnition for corruption would be
an activity which undermines public confdence in
the integrity of the rules, systems and institutions that
govern society is corrupt.
The role of human rights in good
governance
Effective promotion of good governance and
challenging corruption requires respect for basic
human rights. Corruption often fourishes in an
environment where basic human rights are violated.
The Australian Governments support for the
promotion and protection of human rights globally has
been mixed. For example, the Australian Government
has pressured the Government of the Philippines
over murders of human rights defenders, church
members, trade unionists, journalists, lawyers and
anti-corruption campaigners.
In contrast, with regard to the case of an Iraqi
allegedly tortured to death by US-led forces in Iraq,
the Department of Foreign Affairs and Trade has
stated that Government policy is, not to comment
on the actions of other countries in relation to matters
in which Australia has no involvement. In the latter
case, such a policy seems at odds with promoting an
environment which respects human rights and good
governance. This stance sets a very poor example
to the Iraqi authorities and the Iraqi people. Further,
such a policy is likely to undermine the commendable
programs the Australian Government has run to
promote human rights and good governance in Iraq.
Models of success
Whilst there is no one model that will ft all
circumstances, there are some universally applicable
conditions that offer a society protection from
corruption - political and economic stability, strong
social infrastructures, respected institutions,
functioning systems of accountability and
transparency, and a relatively narrow equality gap.
Currently, donor funds for good governance programs
are largely directed to strengthening law and order
institutions, building national security, reforming
public sector administration and economic capacity
building. The majority of good governance projects
are not directed at the community level.
However, for a culture of good governance to
develop, there is a need to build demand for it within
the general community. Good governance requires
and fosters participation by the whole community
in decision making processes, especially the
disenfranchised and marginalised.
Combating corruption requires being fexible and
adaptive to local contexts. For example, the use of
standard competitive tendering for demining projects
in Bosnia resulted in contracts being awarded to
commercial companies that cut corners on safety.
This resulted in an accident rate three times higher
than for non-commercial, non-government demining
organisations.
It also needs to be recognised that in weak states
in post-confict situations, effective systems of
governance are rarely established, and rules can be
bypassed through extra-legal mechanisms such as
bribery and favouritism.
1c
Local communities should be involved in the planning,
implementing and monitoring of aid projects, to
minimise the risks of corruption. Citizens need to be
empowered to hold their governments to account
especially for the delivery of basic and essential
services. There is a need to empower those people
who have the greatest needs and make sure they
have the ability to hold authorities to account. Donor
countries, such as Australia, have an important role to
play in facilitating this engagement in the aid projects
they fund.
Progress toward good governance will be most
effective using incremental approaches which respect
local social and political constraints, rather than
attempts at comprehensive reform.
The role of wealthy countries in
corruption
Corporations, individuals, and governments in
wealthy countries sometimes facilitate and beneft
from corruption in developing countries. In the words
of the World Bank and the UN Offce on Drugs and
Crime
1
:
While the traditional focus of the international
development community has been on
addressing corruption and weak governance
within the developing countries themselves,
this approach ignores the other side of the
equation: stolen assets are often hidden in the
fnancial centres of developed countries; bribes
to public offcials from developing countries
often originate from multinational corporations;
and the intermediary services provided by
lawyers, accountants, and company formation
agents, which could be used to launder or
hide the proceeds of asset theft by developing
country rulers, are often located in developed
country fnancial centres.
Bodies in wealthy country paying bribes
The World Bank estimates that US$1 trillion is paid in
bribes each year globally. Transparency International
is concerned that corruption in developing countries
is in fact sustained by bribes paid by Western
countries. A 1997 estimate of bribes paid by
international companies to do business in developing
countries put the fgure at US$80 billion per year,
more than the total overseas aid to these countries.
UN Offce on Drugs and Crime and the World Bank, Stolen
Asset Recovery (StAR) Initiative: Challenges, Opportunities and
Action Plan, The World Bank, June 2007, p. 1.
In some cases, wealthy countries have been slow
or reluctant to act on issues of bribery in developing
countries. For example, the OECD has criticised the
UK Government for taking into consideration the
possible impact on the UK economy, or its relations
with other states, before being willing to take forward
a bribery case. In fact, there has not been a single
prosecution of a UK company in the UK for bribery of
a public offcial in a developing country.
Tax havens and tax competition
Over the last two decades, tax competition has led to
a race to the bottom in corporate tax rates in many
developing countries that now have signifcantly lower
tax rates than OECD countries. In trying to attract
foreign investors, there has been a dramatic decrease
in tax rates for foreign owned subsidiaries and
affliates of trans-national companies.
Oxfam estimates that developing countries could
be losing annual tax revenues of at least US$50
billion as a result of tax competition and the use of
tax havens. The recovery of some of this revenue, if
used effectively, could have an enormous impact on
alleviating extreme poverty in developing countries.
Alex Cobham at the Oxford Council on Good
Governance has shown that poorer countries forego
US$385 billion in revenues per year as a result of tax
avoidance and tax evasion, nearly four times what
they get in foreign aid.
The Tax Justice Network estimated in March 2005
that there was US$11,500 billion held by individuals
in approximately 73 tax havens around the world. The
worldwide tax revenue lost as a result was estimated
at US$255 billion per year. With so much revenue
lost due to international tax evasion and avoidance
by large companies and wealthy individuals,
governments are forced to either reduce public
spending and/or increase taxation on less mobile
small companies or poorer individuals.
Banking secrecy and trust services provided by global
fnancial institutions operating offshore provide a
secure cover for laundering the proceeds of political
corruption, fraud, embezzlement, illicit arms trading
and the global drug trade. The lack of transparency
in international fnancial markets contributes to the
spread of globalised crime, terrorism, bribery of
under-paid offcials by western businesses, and the
plunder of resources by business and political elites.
Corruption clearly threatens development, and it
is tax havens that facilitate the money laundering
of the proceeds of corruption and all types of illicit
commercial transactions.
11
Tax havens create an illusion. Through the use of
nominees and trust arrangements, tax haven activity
can appear to take place nowhere, which means
it is accountable to no government, pays no tax to
anyone, and has no duty to report anything because it
can deny it is anywhere.
In combination, tax competition, aggressive tax
avoidance, tax evasion and the associated illicit
capital fight to offshore fnance centres imposes
a massive cost on developing countries. This cost
usually far outweighs the amount of aid received.
Recovering stolen funds from western bank
accounts
Developing country governments often have
diffculties recovering funds stolen through corruption
by past regimes, when such stolen funds have been
placed in the banks of wealthy developed countries.
A report by the Paris-based Comit Catholique contre
le Faim et pour le Dveloppement in March 2007
estimated that the value of wealth stolen by the most
prominent dictators over recent decades amounted to
US$100180 billion. The report found that only US$4
billion has been repatriated from wealthy countries
and a further US$2.7 billion has been frozen.
However, the UN Convention Against Corruption
contains detailed asset recovery provisions which
are now in force, but still need to be implemented by
countries that have ratifed the Convention.
Corruption in lending
Leaders of developing countries may take out loans
for corrupt purposes. The resulting debts can saddle
future governments, and the people of the country,
with the burden of paying interest on the loans as
well as repaying the principal borrowed. In effect,
fnancial markets may enable corrupt governments to
steal from the future. Another way fnancial markets
facilitate this kind of corruption is to provide loans
against secured assets. Valuable assets can be
converted into cash today without ever being publicly
sold. Future governments and tax payers are left with
repayment.
Governments of developed countries have largely
refused to recognise the concept of odious debt
being applied to the debts of developing countries.
Odious debt is applied when:
loans are made to illegitimate authorities, such as
undemocratic governments;
the loans are not used for the beneft of the
people under that authority; and
1.
2.
the lender should have reasonably known of the
frst two conditions.
In such cases the concept of odious debt is
applied and the loans are deemed to be illegitimate
and unenforceable. The Australian Government
has refused to accept that odious debts should be
cancelled.
Loans made for corrupt purposes increase a countrys
debt level while doing nothing to increase a countrys
capacity to make repayments.
Benefting from products obtained through
corruption
One of the ways that wealthy countries beneft
from corruption in the developing world is through
the receipt of goods obtained through corruption.
Products obtained through corruption are often
cheaper than if the products had been produced
through legal or legitimate means. Developing
countries are then cheated out of revenues they
would have otherwise received if the products had
been produced and sold legitimately.
Timber and wood products obtained from illegal
logging are an example of the types of products
that developed countries receive cheaply as a result
of corruption in the developing world. The World
Bank estimates that the global annual market value
of losses from illegal logging at over US$10 billion,
which is more than eight times the foreign aid
provided for sustainable management of forests.
Multilateral Development Banks dealing with
corruption
The World Bank has investigated 2000 cases of
corruption since 999, and sanctioned over 300 frms
and individuals. However, the World Bank has not
always assisted developing countries in their attempts
to combat corruption.
Meanwhile the Asian Development Bank (ADB) has
not published the list of companies blacklisted for
corruption in ADB funded projects.
The lack of transparency of the ADB in dealing with
corruption needs to be of signifcant concern to
Australians given that the Australian Government
White Paper Australian Aid: Promoting Growth and
Stability indicates that the Australian Government will
work with the ADB in areas of mutual interest.
3.
1z
What attempts are being made
internationally to deal with these
problems?
There are a number of concrete initiatives being taken
internationally to shift cultures of corruption to those
of good governance.
These include:
UN Convention against Corruption (2003);
OECD Anti-bribery Convention (1997);
Asian Development Bank OECD Action Plan
for Asia-Pacifc;
The Partnering Against Corruption Principles
for Countering Bribery (PACI Principles), an
initiative of the World Economic Forum in
partnership with Transparency International
and the Basel Institute on Governance;
Extractive Industries Transparency Initiative
(EITI) (2002);
The Equator Principles;
Publish What You Pay and Publish What You
Lend; and
The APEC Code of Conduct for Business.
In addition, the OECD issued a report in 1998 on
Harmful Tax Competition, which identifed harmful
tax practices, many of which are associated with tax
havens. The OECD approach has been to eliminate
harmful practices by obtaining mutual undertakings
between all parties. The OECD has only been partially
successful in its efforts largely because of conficts
between the tax havens it targeted, and the inability of
the OECD to stop countries within the OECD pursuing
the very practices the report identifed as harmful.
There are bodies that assist government agencies in
combating money laundering. The Financial Action
Task Force, the Egmont Group and the Asia Pacifc
Group on Money Laundering are three that Australia is
a member of.
In September 2007, the World Bank and the UN
Offce of Drugs and Crime launched a new effort to
assist developing countries in recovering billions of
dollars of looted funds, known as the Stolen Asset
Recovery Initiative.
How does Australia perform in
dealing with corruption?
Financial Action Task Force Assessment of
Australia (FATF)
The FATF is an intergovernmental body which sets
standards and develops policies to combat money
laundering and terrorist fnancing. Its Third Mutual
1
requirements.
Financial institutions are required to assess
the risk they are exposed to, the threat of
money laundering and terrorism fnancing and
then must take steps they deem appropriate
to address the risks.
Penalties for non-compliance with the regulatory
obligations by a company are as high as $11
million (100,000 penalty units, where a penalty unit
is currently $110) and $2.2 million for individuals.
Individuals that commit criminal offences under the
legislation will face up to 10 years imprisonment.
OECD assessment of Australia
According to an OECD report released in January
2006, Australian authorities demonstrated a strong
commitment to combating foreign bribery. However,
the report concluded that Australia needs to toughen
its stand on companies paying bribes or facilitation
payments to foreign governments.
The report stated that the Australian Tax Offce (ATO)
should implement better systems for detecting foreign
bribery transactions when conducting tax audits. The
OECDs bribery group urged that corporate fnes for
bribery be increased from the current maximum of
$330,000, and that sanctions such as disqualifying for
government contracts, be brought against companies
found to have bribed foreign offcials. It recommended
that the Australian government change whistleblower
legislation to protect public servants who, report
suspicions of foreign bribery and that it consider
introducing stronger whistleblower protections for
private sector employees.
The Australian Government is due to respond to the
OECD report in early 2008.
In December 2006 the Australian Taxation Offce
issued guidelines for its auditors to detect bribes in
payments companies make in developing countries.
The guidelines are based on OECD standards and will
require companies to record information such as the
amount paid, the identity of the foreign public offcial
who was paid, and details of what they were paying
for.
On 3 May 2007, the then Attorney General announced
that the government will tighten up the rules for being
able to claim facilitation payments to foreign offcials
as tax deductions and reduce the defences that can
be mounted against a charge of foreign bribery under
the Criminal Code.
5.
6.
this means a framework that balances the need
to curb tax competition with a respect for the
ability of democratic governments to set generally
applicable tax rates and which empower poorer
countries to stem tax evasion.
Supporting an international agreement to share
information on tax administration and income
paid to citizens of one country who reside in
another to help poorer countries to stem tax
evasion
1
.
Providing assistance to developing countries to
ensure they can establish:
sound taxation systems;
rigorous procedures that require international
companies to account for what they do;
international enforcement procedures that
ensure international corporations pay what
they owe; and
sound career paths for key tax administration
personnel so that they stay in their jobs for
longer and are not lured away.
Whistleblower protection
Supporting programs which enhance the
protection of journalists and whistleblowers in
developing countries.
Strengthening whistleblower legislation to protect
public servants who report suspicions of bribery
in relation to foreign contracts and introduce
stronger whistleblower protections for private
sector employees that reveal corruption.
Dealing with bribery
Increasing penalties 30-fold for Australian
companies and individuals found guilty of bribing
foreign governments and offcials and ensure that
those found guilty are denied access to public
contracting opportunities (particularly through
Australias aid program).
Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000, http://www.attac.org/fra/toil/doc/
oxfam2.htm and Richard Murphy, John Christensen and Jenny
Kimmis, Tax us if you can, Tax Justice Network, September 2005,
p. 48.
7.
8.
9.
10.
11.
eccmmendaticns cn what AustraIia ccuId dc tc
ccmbat ccrrupticn gIcbaIIy
1
Ensuring that all cases of foreign bribery be
referred to the Australian Federal Police by
Commonwealth agencies.
Changing processes to ensure that politically
sensitive cases of foreign bribery are not
potentially delayed in being referred to the
Australian Federal Police by the notifcation to the
Minister of Justice and Customs.
Requiring an external auditor who discovers
indications of a possible illegal act of bribery
to report the discovery to management and, as
appropriate, to corporate monitoring bodies, and
the competent authorities
2
.
Ensuring that members of the Australian Public
Service, including AusAID offcials, who come into
contact with companies involved in international
business understand that the Australian Public
Service Code of Conduct requires them to report
to the Australian Federal Police credible evidence
of foreign bribery offences that they uncover in
the course of performing their duties
3
.
Introducing formal rules on the imposing of
civil or administrative penalties upon bodies
and individuals convicted of foreign bribery,
so that public subsidies, licences, government
procurement contracts and export credits can be
denied or terminated as penalty for foreign bribery
in appropriate cases
4
.
Establishing a policy for denying access to
contracting opportunities with public agencies,
such as the Export Finance and Insurance
Corporation (EFIC) and AusAID, as well as
provisions for the termination of such contracts
in appropriate cases where contractors are
convicted of foreign bribery after entering the
contract
5
.
2 Based on the recommendation under the section numbered
179 in OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
Business Transactions and the 1997 Recommendation on
Combating Bribery in International Business Transactions, 4
January 2006.
3 Based on the recommendation under the section numbered
179 in OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
Business Transactions and the 1997 Recommendation on
Combating Bribery in International Business Transactions, 4
January 2006.
4 Based on the recommendation under the section numbered
181 in OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
Business Transactions and the 1997 Recommendation on
Combating Bribery in International Business Transactions, 4
January 2006.
5 Based on the recommendation under the section numbered
181 in OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
12.
13.
14.
15.
16.
17.
Fully implementing the Action Statement on
Bribery and Offcially Supported Export Credits
agreed by the OECD.
Dealing with lending as corruption
Australia should accept the principle that those
debts that meet the criteria of being odious
should be cancelled.
Australia should commit to the principle of
creditor co-responsibility and ensure the
responsibility of any future bilateral and
multilateral lending involving Australia by:
Introducing guidelines that discourage lending
(or insurance of lending by EFIC, Australias
Export Credit Agency) towards projects
where there is dubious development beneft,
where there is an unacceptable risk of non-
repayment or where there are not adequate
human rights or environmental safeguards.
Advocating for the adoption of similar
guidelines at by the multilateral development
banks at which Australia is represented,
particular the Asian Development Bank.
Supporting local initiatives
Supporting the promotion of a global culture of
respect for basic human rights, so that those
seeking to tackle corruption are not subjected to
human rights abuses.
Providing assistance to communities to tackle
corruption and build good governance that build
a strong sense of local ownership and genuine
partnership.
Multilateral Development Bank Reform
Advocating for reforms of the World Bank and
International Monetary Fund (IMF) that enhance
democratic representation and transparency,
including elections by Board of Governors to all
board seats, publication of meeting transcripts
and a democratic, transparent and merit-based
process for selecting the World Bank President
and IMF Managing Director
Pressuring the World Bank, IMF and the Asian
Development Bank to deal promptly with
companies found to have engaged in corruption,
and with suffcient penalties to deter other
companies from engaging in corruption.
Business Transactions and the 1997 Recommendation on
Combating Bribery in International Business Transactions, 4
January 2006.
18.
19.
20.
21.
22.
23.
24.
zc
1
The following paper has been prepared by the Justice
and International Mission Unit of the Uniting Church
in Australia, Synod of Victoria and Tasmania as a
contribution to the current debate about increasing
overseas aid.
Corruption hurts local communities and individuals.
Corruption is a threat to the economic stability and
security of countries whose resources have been
stolen or diverted.
When a countrys health budget is stolen, clinics are
left without the medications they need, hospitals are
left without equipment, doctors are left unpaid and
babies are not immunised. In the words of Australias
former Minister for Foreign Affairs, The Hon.
Alexander Downer, It is the poor who suffer if funds
are diverted through corruption.
1
Those opposed to increasing fnancial assistance to
developing countries in reducing poverty often rely
on the argument that the governments of developing
countries are corrupt and that aid placed into those
developing countries will be wasted.
The Unit acknowledges that corruption is a
signifcant problem in some developing countries,
but certainly not all. Further, there is a cycle in which
poverty encourages corruption and corruption then
undermines attempts to reduce the poverty. This
cycle is not broken by withholding fnancial support
to impoverished communities, but requires a more
sophisticated approach to shift a culture of corruption
to one of good governance.
Further, wealthy countries can foster corruption
and reward it as they beneft from the corruption
themselves. Countries with lax banking laws may in
effect allow money stolen through corruption to be
laundered through their banking system. They may
also fail to assist developing countries in the recovery
of funds stolen through corruption. A number of
wealthy countries do not have adequate laws to
prevent companies based in their country from paying
bribes to offcials in developing countries where
the company may also be operating. Tax havens,
AusAID, Tackling corruption for growth and development. A
Policy for Australian Development Assistance on Anti-Corruption,
Canberra, March 2007, p. iii.
often in wealthy countries, have a whole industry
of accountants, lawyers and bankers dedicated
to assisting rich companies and individuals in the
corrupt avoidance of paying their fair share of tax.
The Royal African Society in London has stated that
Africa loses as much as US$148 billion a year in
corruption, a fgure that is accepted by the UN and
the World Bank, and which represents 25% of the
Gross Domestic Product of African countries. They
claim this money is rarely invested in Africa, but fnds
its way into the international banking system and
often into western banks.
Australia needs to ensure that the Australian banking
system is not a recipient of money taken in corruption
and that any such money must be repatriated to the
country of origin. The Australian Government also
has a role to play in encouraging other developed
countries to reform their banking sectors not to
accept money taken in corruption and to return stolen
assets.
Developed countries put staff and resources into
investigating funds related to drugs and terrorism
because these activities are seen to have adverse
effects on people. However, the same effort does
not appear to have been made with regard to money
connected to corruption. Yet, corruption may actually
kill or adversely effect more people than both drugs
and terrorism.
Transparency International has concluded that
corruption is undermining progress towards the UN
Millennium Development Goals, in particular the three
related directly to health: reduced child mortality;
improved maternal health; and the fght against
HIV/AIDS, malaria and other diseases. In their view,
With the target date for achieving the goals just nine
years away, the global community is already off target
to meet them and corruption is one of the primary
causes.
2
Curbing corruption is part of the means to creating a
more accountable, effcient and effective government.
It also allows for development that assists those in
2 Transparency International, Theft, bribery and extortion rob
millions of proper healthcare, says Global Corruption Report 2006
Media Release, 1 February 2006.
Intrcducticn
z1
poverty. Anti-corruption measures should focus on
a fairer distribution of resources for all in society. A
long term approach is needed where donors cannot
expect signifcant change in the short term.
In Section 2 of the report, defnitions around good
governance and corruption are explored. Section
3 provides a brief theological consideration of
Christianitys support for anti-corruption activities
and supporting good governance. Section 4 deals
with what general lessons exist about what is needed
to change a society from one where corruption
fourishes to one in which good governance exists
and the opportunities for corruption are minimised.
This section also provides some examples of
where corruption has been dealt with successfully
and good governance systems installed. Section
5 deals with the ways that wealthy countries can
foster, reward and beneft from corruption. Section
6 deals with international measures being pursued
to address corruption as a global problem, looking
at the development of international treaties,
agreements and programs to address corruption
and promote good governance. Section 6 does
not consider the multitude of local initiatives that
exist around the world to address corruption and
develop good governance, with a number of these
having already been addressed in Section 4. Finally,
Section 7 examines how Australia rates in dealing
with corruption. In what ways does Australia seek
to address corruption globally, but also what
inadequacies exist and where is further improvement
needed?
Most of the examples in the report are from the Asia
Pacifc region, but other global examples are used,
especially from Africa.
zz
2
Cccd gcvernance and ccrrupticn
working defnitions
The concept of governance is widely understood as
the process of decision-making and the process
by which decisions are implemented (or not
implemented). The World Bank and International
Monetary Fund (IMF) defne governance as the
manner in which public offcials and institutions
acquire and exercise authority to shape public policy
and provide public goods and services
1
.
Good governance is defned by the United Nations
Economic and Social Commission for Asia and the
Pacifc as:
participatory, consensus oriented, accountable,
transparent, responsive, effective and effcient,
equitable and inclusive and follows the rule of
law. It assures that corruption is minimized,
the views of minorities are taken into account
and that the voices of the most vulnerable in
society are heard in decision-making. It is also
responsive to the present and future needs of
society
2
.
2.1 Participation, equality and
inclusion
Participation in civil society includes the decision-
making processes of both men and women, across
race, religion, ethnicity and disability allowing the
concerns of the most vulnerable in society to be
heard and addressed. This would mean ensuring the
development of an organised civil society, as well as
freedom of association and expression.
2.2. Rule of law
Rule of law refers to the impartial enforcement of a
law by an independent judiciary and an incorruptible
and unbiased police force, both upholding the
protection of the human rights of all members of
society.
Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. i.
2 United Nations Economic and Social Commission for Asia and
the Pacifc http://www.unescap.org/huset/gg/governance.htm
2.3. Transparency and
accountability
Transparency and accountability are inextricably
linked with each other and the rule of law.
Transparency and accountability are achieved when
rules and regulations are followed in an open and
traceable manner. In general, decision-makers and
implementers are accountable to those who are
affected by their decisions and actions.
The international non-government organisation
Transparency International (TI), founded in 1993
to campaign against corruption, has defned
transparency as, a principle that allows those
affected by administrative decisions, business
transactions or charitable work to know not only the
basic facts and fgures, but also the mechanisms
and processes. It is the duty of civil servants,
managers and trustees to act visibly, predictably and
understandably.
2.4. Effciency and effectiveness
Good governance must involve meeting the needs
of society through making best use of the resources
available, including development assistance as
a substantial resource for some countries. This
includes attention to the sustainable use of resources
and the protection of the environment.
One Christian perspective on ethical governance
argues that:
The needs of the poor are more important
than the wants of the rich; the freedom of the
dominated is more important than the liberty of
the powerful, and; enabling marginalised groups
to participate is more important than retaining a
system which excludes them
.
2.5. Defning corruption
Transparency International (TI) initially defned
corruption as, the use of public offce for private
3 Australian Catholic Bishops Conference, Common Wealth for
the Common Good: A Statement on the Distribution of Wealth in
Australia, Melbourne, Collins Dove, 1992.
z
gain. Its founders were motivated by what they saw
as a silence on the part of the World Bank over the
problem of corruption. TI later expanded its defnition
to, the misuse of entrusted power for private beneft.
This was seen as necessary in light of the privatisation
of public services such as water and electricity
where private companies were subsequently able to
monopolise the supply of these essential services
4
.
The German Federal Ministry of Economic
Cooperation and Development has defned corruption
as the behaviour of people who are entrusted with
public or private tasks and who, by failing to respect
their obligations, acquire unjustifed advantages.
5
The Tax Justice Network has pointed out that the
TI defnition is too narrow and has the possibility of
failing to capture tax evasion and falsifying of pricing
in imports and exports by private individuals and
companies. It has suggested that a possible broader
defnition for corruption would be an activity which
undermines public confdence in the integrity of the
rules, systems and institutions that govern society is
corrupt.
4 Hindess and Larmour, Transparency International and the
Problem of Corruption, http://apseg.anu.edu.au/pdf/plarmour/
ARC_project_plarmour.pdf, 2003.
5 GTZ UNCAC Project, Combating Corruption through
Development Cooperation, GTZ, Eschborn, Germany, February
2007.
zq
3
IhecIcgy cf Ccrrupticn and Cccd Ccvernance
The Christian faith and tradition has a long history
of condemning corruption and calling for those
in authority to act justly and fairly. However, at
the same time, both churches and those calling
themselves Christian have participated in and
facilitated corruption throughout history, both within
the churches themselves and in the wider community.
Even today, the Christian community continues to
be plagued by corruption scandals, especially in the
area of those in leadership positions in the church
misusing their entrusted power to pursue their own
sexual gratifcation. Where churches and individual
Christians have acted corruptly, facilitated corruption
or looked the other way it has been in rejection of
the teaching and life of the founder of the Christian
movement.
When facing questions of governance, the theological
confession in Jewish and Christian scripture affrms
that God is sovereign. All life, including human society
and politics, springs from that sovereign God.
The prime purpose of the prophetic tradition of the
Older Testament, which arose in times of Israels
monarchy, was to remind the political leaders and the
populace of Gods prior and sovereign claim.
The prophets in the Older Testament condemned the
corruption they saw in their societies, especially that
committed by rulers, the priesthood, the judiciary
and the wealthy. The pre-exilic prophets condemned
corruption amongst the priests, who, amongst other
forms of corruption, failed in their duties to the society
in not upholding the law of God
1
.
Israel was condemned by the pre-exilic prophets
for trampling the poor (Amos 2:7, 5:11, 8:4, Isa
3:15, Ezek 22:29). They took usury and excessive
interest and made unjust gain from their neighbours
by extortion (Ezek 22:12-13, 22:29). The poor were
forced to hand over grain (Amos 5:11). The people
of Israel were accused of cheating economically in a
range of ways; skimping on the measure, boosting the
price, cheating with dishonest scales, defrauding and
selling even the sweepings with the wheat (Amos 8:4,
Hos 12:7).
1 Hos 4:6, 4:8, Ezek 22:26, Zeph 3:4, Mic 3:11, Jer 5:31, 6:13,
8:10, Isa 28:7.
The powerful were accused of coveting felds and
houses and seizing them (Mic 2:2). The exploitation
of the poor was contrasted with the wealth of those
carrying out the exploitation (Amos 5:11-12, Jer 5:27-
28).
Rulers are also directly accused of economic
exploitation. For example, King Jehoiakim is
condemned by Jeremiah for forcing men to build
a palace and not paying them for their labour (Jer
22:13-14). Excavations have shown that at this
time a splendid palace was built mid-way between
Bethlehem and Jerusalem, at a time when economic
conditions for the people of Judah were poor
2
.
The prophets called on those in positions of power
and authority to behave in accordance with Gods law
and not to oppress the poor and defenceless
3
.
In the books of the pre-exilic prophets Israel was
to be punished for denying justice (Amos 2:7). The
leaders of the house of Jacob and Israel were
accused of despising justice and distorting what is
right (Mic 3:9). Justice was corrupted (Amos 5:7,
6:12, Hab 1:4) and Gods courts were trampled (Isa
1:12). Bribes were taken and the poor, orphans,
widow, alien and oppressed are denied justice in the
courts (Amos 5:12, Mic 3:11, Isa 5:23, 10:2, Jer 5:28,
Ezek 22:29). Perjury was committed (Jer 7:9) and
false testimony was used to deprive the innocent of
justice and to falsely make people out to be guilty (Isa
29:21).
The book of Ecclesiastes also warns against
corruption, stating Extortion turns a wise man into a
fool, and a bribe corrupts the heart (Ecc 7:7).
The church sees in Jesus Christ a confuence of
the sovereign claim of God and the loyal human
response. By his life and ministry Jesus announced
the reign (political claim) of God. In his life committed
completely to that God, he demonstrates a human
politics that depends entirely upon the governance of
God. The New Testament recalls that such undivided
loyalty cost Jesus his life. Paradoxically, the Church
2 H. Jagersma, A History of Israel in the Old Testament Period
(London: SCM Press Ltd, 1982), p. 177.
3 Lon Epzstein, Social Justice in the Ancient Near East and the
People of the Bible (London: SCM Press Ltd, 1986), p. 69.
z
understands that the complete self-giving of his death
is a full expression of Gods claim, expressed as a
sovereign love. That is to say, Jesus life and death
demonstrate a sovereignty and a governance which
consists of sheer, unlimited and unconditional love.
Jesus condemned corruption in the society around
him, especially of religious leaders. Probably the most
well known account in this regard is the over-turning
of the tables of the money changers and people who
sold things in the Temple in Jerusalem, where Jesus
condemns their making proft off people who come
to worship God (Mt 21:12-13; Mark 11:15-17; Luke
19:45-46; John 2:13-16).
Jesus warns his followers that they cannot be faithful
to God if they place store in fnancial gain, as You
cannot serve both God and money (Mt 6:24). He
states that whoever is dishonest with a little with be
dishonest with much and if you cannot be trusted in
handling worldly wealth, then you will not be trusted
with the true riches of the kingdom of God (Luke
16:10-13).
Jesus lists theft, greed and deceit, all aspects of
corruption, which make a person unclean (Mark
7:20-23).
He criticises the teachers of the law in his society for
using their positions to exploit widows, devouring
their houses (Mark 12:40, Luke 20:46-47).
Jesus states that those faithful to God seek to be
good servants to others and lord it over others (Mt
20:25-27, Mark 10:42-44, Luke 22:25-30).
He tells Zacchaeus, a tax collector, that salvation has
come to his home when Zacchaeus promises to give
half his possessions to the poor and to repay anybody
that he corruptly cheated back four times the amount
they were cheated (Luke 19:8-10).
John the Baptist tells tax collectors to collect only
what they are required to, as they often corruptly
enriched themselves by taking more than they were
entitled to, and he told soldiers not to extort money
(Luke 3:12-14).
In Pauls letter to Titus, he rebukes the members
of the Christian community on Crete that are being
corrupt through teaching for dishonest gain (Tit 1:10-
16).
In the books of James the rich are condemned for
their corrupt dealings with the labourers working
for them Behold, the wages of the labourers who
mowed your felds, which you kept back by fraud, cry
out; and the cries of the harvesters have reached the
ears of the Lord of hosts (James 5:4).
z6
4
McdeIs cf transiticn frcm ccrrupticn tc
gccd gcvernance
What are the suggested models of success for
countries being able to turn around a culture of poor
governance and corruption to a situation of good
governance with appropriate checks and balances?
The building of state capacity to openly and effciently
respond and provide for its citizens has become more
complex in an increasingly globalised world.
There is no one complete model which fts all
situations. An understanding of the specifc cultural
and social context is paramount in the development
of reform within a society that will create and sustain
a political culture of good governance. Even the
World Bank has acknowledged this point, stating
Governance challenges are far from uniform across
countries, so strategies must be differentiated and
strongly based on local knowledge, innovation on
the ground, and extensive collaboration with local
communities.
1
However, stable societies with strong social
infrastructures, respected institutions, functioning
systems of accountability and transparency, and
relatively narrow equality gap are better protected
against corruption
2
.
4.1 Fighting corruption needs
funding
Without adequate funding, developing countries may
be undermined in their efforts to combat corruption.
As long as government offcials, police, the judiciary,
health workers, soldiers and anyone else dependent
on the government for their income are not paid a
suffcient income to live, the risk of them engaging
in corruption is increased. Thus, anti-corruption
programs must be linked to ensuring adequate
salaries are paid, which has implications for the level
of aid that may be needed.
Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. ii.
2 Vanessa Baird, Can the rot be stopped?, New Internationalist,
December 2006, p. 4.
4.2 Need to build demand for
good governance
Donor funds for good governance programs are
largely directed to strengthening law and order
institutions, building national security, reforming
public sector administration and economic capacity
building. The majority of good governance projects
are not directed at the community level.
In 2001, the OECD Development Assistance
Committee reported that approximately 70% of the
Australian Governments good governance programs
were directed at activities that focused on personnel
at a senior government or industry level. Very little
was provided for civil society and human rights and
programs that work towards building participation and
demand for good governance from the community
3
.
However, the anti-corruption policy of AusAID,
released in March 2007, indicates that the Australian
Government has recognised that systematic anti-
corruption reform requires local champions for
change and should be driven from within. High-
quality political leadership, encouraged by a strong
local reform movement, is critical to success.
4
It is hoped that this policy will lead to a greater
commitment of Australias efforts in anti-corruption
and good governance measures being directed to the
need to build greater demand to good governance at
the local level.
Good governance fosters participation by the whole
community in decision making processes, especially
the disenfranchised and marginalised and not simply
the dominant voices.
The UN Development Programme in the Philippines
has stated that in order to foster democratic
governance it is necessary to empower citizens,
especially women and disadvantaged sectors,
and provide them with opportunities to engage in
governance processes by:
3 Australian Council for International Development, Responding
to the Communitys Voice. Good governance and Development,
Harambee, March 2006, p. 10.
4 AusAID, Tackling corruption for growth and development. A
Policy for Australian Development Assistance on Anti-Corruption,
Canberra, March 2007, p. 7.
z
Enhancing their awareness and
understanding, knowledge and analytical skills
on policies, programs and mechanisms;
Increasing their access to public information;
Providing venues for policy dialogues;
Creating and expanding opportunities for
networking and linkage-building;
Strengthening their capacities to monitor
government and non-governments
performance and practices; and
Building their capacities to engage and
represent their constituents in governance
structures and processes
5
.
While the World Bank has recognised there is a role
for local bottom-up participatory reform, such as
community-driven development, it seems to believe
that such demand led governance should only be
pursued when opportunities for governance reform
at the national level are limited.
6
However, the Bank
acknowledges that civil society, non-government
organisations, the media and local communities have
a role to in holding governments and institutions
accountable. It states that it will work to support
participatory and transparency initiatives, enabling
citizens to access information and participate in
development of policies, spending priorities and
service provision; promote community participation
to improve local governance; and build media
capacity
7
.
As pointed out by Dennis de Tray, vice president
of the Centre for Global Development, and former
World Bank resident representative in Indonesia, aid
donors simply ensuring their projects are free from the
effects of corruption is not a way to build meaningful
good governance. In his words ring fencing donor
projects is a cop-out when it comes to fghting the
corruption that matters. It may make donors feel
good, it may be important to keep taxpayers happy,
but it does not lead to sustainable reductions in
5 UNDP Philippines, Country Programme Action Plan between
the Government of the Philippines and United Nations Development
Programme, 2005 -2009, p. 9.
6 Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. ii.
7 Ibid., pp. v, 6.
corruption.
8
The Australian Government appears
to have realised this point and in the White Paper
Australian Aid: Promoting Growth and Stability it is
stated that each major aid activity will as a matter of
course, set out what it is doing not only to reduce the
risks of corruption to the activity, but also to reduce
corruption in the sector to which it applies.
9
Australias programs in both Papua New Guinea
and Solomon Islands have been criticised as
capacity building ending in capacity destruction.
The argument has been made that AusAIDs funding
of services under the concept of capacity building,
end up delivering it, thereby undermining the local
government and peoples ability to continue the
service once those providing it leave. The bulk of the
$247 million Australia spent in the Solomon Islands
in 2004 in aid was paid to Australians working there.
Australian salaries in the Solomons are much higher
than the locals, their offces are vastly superior, much
of their food and water is fown in from Australia, at
a great expense, and on average the most senior of
them are costing the Australian aid budget $600,000
a year
10
.
As Stewart Firth points out, The reason is that local
government never come to think of service provision
as theirs, but stand on the sidelines dealing with
the foreigner, coordinating aid projects and working
on the next submission for funds. There is a great
danger that something of this kind might happen
in Solomon Islands.
11
This does not enable the
local people to learn the skills necessary to run
a sustainable system of governance including
developing their own institutions specifc to their local
context.
8 Dennis de Tray, Corruption and Development: An Impolitic
View, 1818 Society Fall Luncheon, 16 November 2006.
9 AusAID, Australian Aid: Promoting Growth and Stability.
A White Paper on the Australian Governments Overseas Aid
Program, 2006, p. 60.
10 Stewart Firth, Towards Justice and Human Development in
the South Pacifc: how Australia can do better, The Don Dunstan
Lecture, The University of Melbourne, 2005.
11 Ibid.
z8
4.3 Integrating traditional
governance with liberal democratic
methods of governance
The Solomon Islands provides a key example of
state failure due in large part to the lack of ft of the
institutional design with the local political culture
12
.
The primary lesson to be learned here is that
introduced institutions and systems of governance
lack social foundations. Indigenous societies
throughout Melanesia had systems of governance
to uphold transparency and accountability, before
the arrival of Europeans. These cannot be ignored,
for as Hegarty et al writes, Local social systems and
structures of traditional governance have proved
resilient and adaptable, and continue to provide the
primary reference for most Solomon Islanders
13
.
At the same time it needs to be recognised that
these traditional Melanesian social systems will not
be effective at a national level without signifcant
modifcation.
Throughout Melanesia, indigenous understandings of
good governance clearly involve notions of equity.
Bernard Narokobi, a Papua New Guinean writer says,
good governance means:
taking good care of our land, our resources
and our relationships with one another and of
course with people who we regard as allies,
or friends in the working out of our common
lives. Good governance, good administration,
good management, a key to it is wisdom in
our societies. You have to be wise, you have
to be sensitive, you have to be cautious,
careful in what you say, what you do, and most
signifcantly in your distribution of food and pigs
you must be fair to everyone.
Liberal democracy, the governance model promoted
and implemented through development assistance
programs in Samoa and throughout the Pacifc, is
publicly adhered to by the Samoan Government.
This model attempts to deal with problems through
legislative and institutional reform, focusing on
improving instruments of government and on
enhancing the role of the private sector particularly
in service provision. It does so with little attempt to
integrate the traditional models of governance into a
national scale.
Samoas experience gives insight into the friction
that can arise between traditional governance and
2 D. Hegarty et al., State, Society and Governance in
Melanesia, Discussion, Research School of Pacifc and Asian
Studies, The Australian National University, 2004, p. 5.
13 ibid, 5.
Western forms of governance. Faasmoa (Samoan
way) and faamatai (way of chiefs) are the most
infuential factors in determining the leadership in the
local village structure of governance
14
.
This system today has its faws, and has not
prevented governance problems. Hyffer and Asofou
Soo see these as a result of:
a lack of correspondence between faasmoa
and liberal democracy;
a lack of general understanding and critical
assessment of the principles of liberal
democracy in Smoa;
a combination of misuse, abuse, or
misunderstanding of faasmoa; and
a lack of publicity and critical assessment of
the principles of faasmoa.
Huffer and Asofou Soo advocate for the use of
traditional and commonly understood concepts to be
employed in institutions of governance, rather than
the language of liberal democracy and rule of law
15
.
Development can be an imposition of western
values and concepts onto local, indigenous cultural
systems. This explains why the local people have not
internalised the new concepts into their daily lives.
While Samoan systems of accountability are founded
in people being able to see their leaders daily in the
village, the western systems of governance introduce
a level of division that needs to be addressed with
reference to local, indigenous understandings of
accountable governance.
With the events of recent confict in mind, Solomon
Islanders have little faith in their current governance
structure. In order to rebuild a democratic governance
system in which Solomon Islanders invest their
support, an integration of local indigenous concepts
of what governance and good governance entails
may be necessary
16
.
In recognition of the importance of understanding
traditional governance, AusAID is providing
research funding to the Australian Centre for Peace
and Confict Studies, based at the University of
Queensland, for a research projectTowards Effective
and Legitimate Governance: States emerging from
hybrid political orders. This research seeks to identify
aspects of modern state institutions, customary local
institutions and civil society institutions that have
the potential to form a hybrid political order in fragile
4 Elise Huffer and Asofou Soo, Beyond Governance in Samoa:
Understanding Samoan Political Thought, The Contemporary
Pacifc, 17 (2), p. 311.
15 ibid
6 Tarcisius Tara Kabutaulaka, Australian Foreign Policy and the
RAMSI Intervention in Solomon Islands, The Contemporary Pacifc,
17 (2), pp. 283-308.
z
states. This approach will be tested through a series
of case studies in Vanuatu, Papua New Guinea,
Bougainville (as an autonomous region of PNG),
Solomon Islands, Tonga and East Timor. AusAID
expects the work to challenge some of the usual
underlying assumptions about fragile states. It also
has the potential to contribute to international thinking
on state building in fragile states.
4.4 Good governance and respect
for human rights
Promotion of good governance requires the
promotion of respect for basic human rights.
Corruption often fourishes in an environment where
basic human rights are violated. Demand led
governance appears open to failure if an environment
exists where those who demand good governance
face severe human rights abuses such as murder,
extrajudicial execution or disappearance at the
hands of the security forces or those involved in
corruption. Demand led governance refers to when
the ordinary members of a society demand good
governance from those in government and the public
service.
Australias actions in the Philippines provide a
positive example of promoting human rights. The
Justice and International Mission Unit has a close
relationship with the United Church of Christ in the
Philippines (UCCP). The UCCP reports that moves to
combat corruption at all levels of government in the
Philippines are being undermined by the failure of the
security forces to protect human rights or even, as the
available evidence
seems to suggest,
being involved
in the murder of
community leaders,
church workers,
journalists, lawyers,
those involved
with opposition
political parties,
trade unionists and
Indigenous leaders.
The UN Development Program in the Philippines
has recognized the need to build an environment in
which basic human rights are respected if democratic
government is to be fostered. The Justice and
International Mission Units experience is that those
working in AusAID and the Department of Foreign
Affairs and Trade recognize the need for the:
active promotion of human rights; and
challenging of human rights abuses with local
1
power. These groups function as savings and
credit groups, providing poor families, particularly
women, with access to credit and income-earning
opportunities that would otherwise be denied to them.
They also provide education, awareness-raising and
empowerment around issues of critical importance to
the communities. HEED assists almost 3,500 of these
groups with over 57,000 members.
Group solidarity is enormously strong among the
members. The groups begin by making a roll-call and
noting who is absent. However, far from being the
least important members of the group because they
have no say in what the group discusses, absentees
become the most important members of the group.
The group discusses why they are absent and what
the group, can do to assist the absent member
through any fnancial, health or family diffculties they
are facing.
PDP groups meet to discuss legal and human rights
issues, particularly issues such as womens rights,
voting and democracy, divorce, dowry and family
law, along with health issues such as HIV/AIDS and
the problem of arsenic-contaminated water. A crucial
part of the work of these groups is to provide the
members with the information, skills and confdence
to understand and defend their own rights and
entitlements. To combat the violent and discriminatory
practices targeted against women that have risen out
of traditional approaches to child marriage, dowry
and divorce, women are informed of their rights under
state law and the support and redress mechanisms
available to them.
Local groups elect members to Ward Committees
(a ward is the local government area) and Union
Committees, where elected councillors meet as
joint members in these groups. These groups are
a powerful force for positive social change in their
communities by:
contributing to local dispute resolution;
raising awareness about issues and
encouraging observance of signifcant
international days, such as Womens Day and
AIDS day;
engaging with local government to ensure
the equitable distribution of important social
services, such as emergency relief, health
programs and girls education scholarships;
and
providing education and community
advocacy.
At these higher level forums (Ward and Union
Committees), the groups also organize community
leaders forums so that local social, political and legal
5
Aspects of the global fnancial system that
enccurage ccrrupticn in deveIcping ccuntries
Governments, corporations, and individuals in
wealthy countries sometimes facilitate and beneft
from corruption in developing countries. In the words
of the World Bank and the UN Offce on Drugs and
Crime
1
:
While the traditional focus of the international
development community has been on
addressing corruption and weak governance
within the developing countries themselves,
this approach ignores the other side of the
equation: stolen assets are often hidden in the
fnancial centres of developed countries; bribes
to public offcials from developing countries
often originate from multinational corporations;
and the intermediary services provided by
lawyers, accountants, and company formation
agents, which could be used to launder or
hide the proceeds of asset theft by developing
country rulers, are often located in developed
country fnancial centres.
5.1 Wealthy country bodies paying
bribes
The World Bank estimates that US$1 trillion is
paid in bribes each year globally
2
. Transparency
International has been concerned that corruption in
developing countries was sustained by bribes paid by
Western countries. A 1997 estimate of bribes paid by
international companies to do business in developing
countries put the fgure at US$80 billion per year paid
in bribes, more than the total overseas aid to these
countries
3
. The World Bank and UN estimate that
corrupt money associated with bribes received by
public offcials of developing and transition countries
is conservatively put at US$20 US$40 billion a year.
UN Offce on Drugs and Crime and the World Bank, Stolen
Asset Recovery (StAR) Initiative: Challenges, Opportunities and
Action Plan, The World Bank, June 2007, p. 1.
2 Penny Jackson, The Other Side of the Coin. The UK and
Corruption in Africa, Africa All Party Parliamentary Group, March
2006, p. 12.
3 Rose-Ackerman, S., The Political Economy of Corruption in
K. Elliott (ed.), Corruption and the Global Economy, Institute for
International Economics, Washington, 1997.
An insidious example of companies that originate in
wealthy country paying bribes to further their interests
at the cost of the lives of people in the developing
world is the continuing practice of infant formula
companies paying bribes to health professionals
in the developing world in order to promote their
products.
The World Health Organisation and UNICEF
recommend exclusive breastfeeding for babies up to
six months of age. The UNICEF Innocenti Research
Centre has estimated that the lives of up to two
million babies could be saved each year if all babies
were exclusively breastfed for six months
4
. The World
Bank has stated that exclusive breastfeeding for six
months is the single most effective measure that
could be implemented to reduce child mortality rates
globally
5
. Yet, the International Code Documentation
Centre of the International Baby Food Action Network
(IBFAN) continues to document infant formula
and baby food companies giving gifts to health
professionals as thinly veiled bribes to get health
professionals to get mothers to feed their babies the
companys products
6
.
These companies put their profts ahead of the lives
of babies in the developing world. There was a media
report of a company in the Philippines paying $13 to
health professionals for every ten babies they signed
up to their products. Undersecretary of the Philippines
Ministry of Health, Alex Padilla, was reported in the
media as saying that new mothers have often been
given infant formula by doctors and midwives in
the hospitals, on commission from the milk formula
companies
7
.
The World Health Organisation International Code of
Marketing of Breastmilk Substitutes requires under
Article 7.3 that No fnancial or material inducements
to promote products within the scope of this Code
4 UNICEF Innocenti Research Centre, 990-2005 Celebrating the
Innocenti Declaration on the Protection, Promotion and Support of
Breastfeeding, November 2005, p. xvi.
5 The World Bank, Directions in Development. Repositioning
Nutrition as Central to Development, 2006.
6 See for example Yeong Joo Kean and Annelies Allain, Breaking
the Rules, Stretching the Rules 2004, International Baby Food
Action Network, May 2004.
7 Connie Levett, Baby formula battle goes to Manila court, The
Age, 3 February 2007, p. 20.
q
should be offered by manufacturers or distributors
to health workers or members of their families, nor
should these be accepted by health workers or
members of their families. An estimated 16,000
babies lives are lost each year in the Philippines
because they are not adequately breastfed. Infant
formula sales in the Philippines are over $1 billion a
year
8
.
In some cases, wealthy
countries have been slow
or reluctant to act on issues
of bribery in developing
countries. For example, the
OECD has criticised the UK Government for taking
into consideration the possible impact on the UK
economy, or its relations with other states, before
being willing to take forward a bribery case
9
. In fact,
there has not been a single prosecution of a UK
company in the UK for bribery of a public offcial a
developing country.
There are some good news stories though. In the
US, the Foreign Corrupt Practices Act 1977 makes
it illegal for any US-based or US-listed company
to engage in foreign bribery. It extends to foreign
companies that issue their stock in the US. The
US Department of Justice and the Securities and
Exchange Commission are reported to have doubled
the number of investigations they are conducting into
overseas bribery in the last year. From 1995 to 2000,
the US Department of Justice averaged less than one
completed investigation a year. Early in 2007, three
subsidiaries of Vetco, a UK oil and gas provider, paid
US$26 million in penalties for having paid US$21
million in bribes to Nigerian offcials
10
.
5.2 Tax havens and tax
competition
Over the last two decades tax competition has led to
a race to the bottom in corporate tax rates in many
developing countries that now have signifcantly lower
tax rates than OECD countries. In trying to attract
foreign investors there has been a dramatic decrease
in tax rates for foreign owned subsidiaries and
affliates of trans-national companies.
Between 1983 and 1996 corporate tax rates for US
affliates operating in developing countries dropped
from 54% to 28%
11
. Poorer countries fnd it harder
8 World Health Organisation, Philippines.
9 Penny Jackson, The Other Side of the Coin. The UK and
Corruption in Africa, Africa All Party Parliamentary Group, March
2006, p. 31.
0 Patti Waldmeir, US cracks down on global bribery, The
Australian, 11 April 2007.
Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000 http://www.attac.org/fra/toil/doc/
oxfam2.htm
than wealthy countries to counter the effects of
tax competition. For example, between 1992 and
2004, the copper industrys total contribution to the
Zambian treasury fell from over $200 million to just
$8 million even though copper prices had climbed
by more than 25% and copper production remained
relatively stable
12
.
There is little evidence that
state and local tax cuts
when paid for by reducing
public services stimulate
economic activity or create
jobs. To the contrary, there
is evidence that increases in taxes, when used to
expand the quantity and quality of public services,
can promote economic development and employment
growth
13
. The economic impact of taxes depends
on the initial tax level, how the revenue is raised, and
how productively the money is spent
14
.
Oxfam estimates that developing countries could
be losing annual tax revenues of at least US$50
billion as a result of tax competition and the use of
tax havens. The recovery of some of this revenue, if
used effectively, could have an enormous impact on
alleviating extreme poverty in developing countries.
Oxfam has stated that: Northern governments
justifably press southern governments to adopt more
accountable and transparent budget systems, but
then create incentives for corruption by failing to deal
effectively with tax havens and other tax loopholes
15
.
Alex Cobham at the Oxford Council on Good
Governance has shown that poorer countries
forego US$385 billion in revenues annually due to
tax avoidance and tax evasion. This is nearly four
times greater than the total OECD countries foreign
development aid to poorer countries
16
.
The push by multilateral institutions such as the World
Trade Organisation and the International Monetary
Fund to liberalise trade regimes has led to a decrease
in revenue to developing countries through taxes
on imports and exports. Unable to increase the
relatively low tax revenue from direct taxes, such as
income tax, due to capital fight and tax avoidance,
2 Tax Justice Network website, International Tax-Co-operation
and Competition, http://weave.nine.ch/domains/taxjustice.net/
cms/front_content.php?idcat=102
3 Richard Murphy, John Christensen and Jenny Kimmis, Tax us
if you can, Tax Justice Network, September 2005, p. 5.
4 Fred Argy, Australias Fiscal Straightjacket: Eight myths about
tax and public debt which are holding us back, Centre for Policy
Development, Occasional Paper Number 4, Sydney, November
2007, pp. 3, 5-6.
5 Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000 http://www.attac.org/fra/toil/doc/
oxfam2.htm
6 Tax Justice Network, Dirty Money and Offshore: Magnitudes
and Measurements, http://weave.nine.ch/domains/taxjustice.
net/cms/front_contents.php?idcat=103
Oxfam estimates that developing countries
could be losing annual tax revenues of
at least US$50 billion as a result of tax
competition and the use of tax havens.
q
has government agency members in 106 countries.
Australia is a member of the Egmont Group. The
Egmont Group was developing a Secretariat in late
2007.
The Asia Pacifc Group on Money Laundering (APG)
is a regional body with 34 countries being members,
8 countries being observers and 18 observer
organisations. It was founded in 1997. The APG
works to ensure the adoption, implementation and
enforcement of internationally accepted anti-money
laundering standards within the Asia-Pacifc region.
This includes assisting countries in the region to enact
laws criminalising the laundering of the proceeds
of crime and corruption and dealing with getting
countries to assist each other in the confscation of
laundered funds and extradition of those involved in
money laundering. It also provides guidance in setting
up systems for reporting and investigating suspicious
transactions and helping in the establishment
of government agencies to investigate money
laundering. Australia has been a member of the APG
since its foundation and the Secretariat of the APG is
hosted in Sydney.
q8
7
Hcw dces AustraIia perfcrm in deaIing with
ccrrupticn?
7.1 The Financial Action Task
Forces assessment of Australia
Australias performance on dealing with money
laundering and combating the fnancing of terrorism
was thoroughly assessed by the Financial Action Task
Force (FATF) which released its report, Third Mutual
Evaluation Report on Anti-Money Laundering and
Combating the Financing of Terrorism, on 14 October
2005.
The FATF is an intergovernmental body which sets
standards and develops policies to combat money
laundering and terrorist fnancing. It was established
in 1989 by the G7 and Australia was a founding
member. At the time of writing it has 33 members;
31 countries and governments and two international
organisations; and more than 20 observer bodies. A
list of all members and observers can be found on the
FATF website at http://www.fatf-gaf.org/Members_
en.htm
Money laundering is basically that funds generated
from illegal activities are introduced into the legal
fnancial system to disguise or obscure that the funds
have been generated from illegal activities. Usually,
the person doing the money laundering introduces the
illegally obtained funds into the fnancial system by
depositing them into a bank or by purchasing things
like cheques and money orders and then depositing
them into accounts in another location. The money
launderer then moves the funds around through a
series of transactions to try to hide their source.
This might be done by purchasing investments or by
transferring the money through a series of accounts
located in various banks across the globe, especially
to banks in countries that do not co-operate in
anti-money laundering investigations. The money
launderer then seeks to have the funds integrated
into the legitimate economy by doing something like
the purchase of real estate, luxury assets or business
ventures
1
.
The FATF assessed Australias performance on
countering money laundering and combating the
fnancing of terrorism against the FATFs Forty
FATF GAFI, Money Laundering FAQ, http://www.fatf-gaf.org.
Recommendations of 2003 and the Eight Special
Recommendations of Terrorist Financing 2001.
Overall, the FATF found signifcant levels of
compliance with its Recommendations, but there
were a number of areas of signifcant defciency
2
:
That while Australias legal regime for dealing
with money laundering appeared to be
comprehensive, dissuasive and proportional, it
was not being effectively applied, and in cases
where it has been applied, sentences appear
low.
There were inadequacies in the system of
identifying customers of fnancial services.
There were no legislative or other enforceable
obligations regarding the identifcation
and verifcation of politically exposed
persons. Politically exposed persons are
individuals who are or have been entrusted
with prominent public functions in a foreign
country, for example, Heads of State or
of government, senior politicians, senior
government, judicial or military offcials, senior
executives of state owned corporations,
important political party offcials. These
people are important to identify as they have
the greatest ability to engage in large scale
corruption.
There were no specifc obligations for fnancial
institutions to monitor all complex, unusual
large transactions, transactions with no visible
economic purposes, to further examine these
situations and to set out these fndings in
writing.
The provisions for suspicious transaction
reporting were generally adequate, but there
is a limitation of cash dealer defnition which
does not apply to all fnancial institutions.
Designated non-fnancial businesses and
professions
3
were not legally required to report
2 FATF GAFI, Third Mutual Evaluation Report on Anti-Money
Laundering and Combating the Financing of Terrorism, 14 October
2005, pp. 145-147.
3 Designated non-fnancial businesses and professions are
defned as casinos, real estate agents, dealers in precious metals,
deals in precious stones, lawyers, notaries, accountants and Trust
and Company Service Providers.
q
suspicious transactions to the Australian
Transaction Reports and Analysis Centre
(AUSTRAC). Further, there were inadequate
enforceable measures for fnancial institutions
and designated non-fnancial businesses
and professions to pay special attention to
transactions involving certain countries.
The only sanctions for AUSTRAC were
criminal sanctions and an injunction power.
The lack of intermediate sanctions, such as
administrative sanctions, means in practice
that formal sanctions were generally not
applied. AUSTRAC did not have the powers
to revoke the licence of cash dealers or to
disqualify persons from being a manager,
director or employee.
AUSTRAC had made limited use of its power
to designate countries as high risk.
That, although the Financial Transactions
Reports Act 1988 extended to overseas
branches of fnancial institutions, Australian
banks indicated that they would frst apply the
local laws, and that in several cases local laws
prohibited full implementation of the Australian
standards due to local secrecy provisions.
Most designated non-fnancial businesses
and professions were not covered under the
Financial Transactions Reports Act 1988 and
lacked effective regulatory and supervisory
systems for monitoring to ensure compliance
with anti-money laundering and counter
fnancing of terrorism requirements.
The lack of administrative sanctions coupled
with an absence of criminal prosecutions
of designated non-fnancial businesses and
professions suggested that sanctions are
generally not applied for breaches of anti-
money laundering and counter terrorism
fnancing requirements.
AUSTRAC had only conducted two
compliance inspection audits of banks in the
last four years.
AUSTRAC needs additional resources
to effectively fulfl its role as anti-money
c
customers and take reasonable measures to
establish the sources of wealth and sources of
funds for such persons. Further, the fnancial
institution should conduct enhanced on-going
monitoring of the business relationship.
Amend the Financial Transactions Reports Act
to apply to all fnancial institutions.
In the event where a foreign branch or
subsidiary is unable to observe appropriate
anti-money laundering measures because this
is prohibited by local laws or regulations of
the host country, those fnancial institutions
should be required to inform Australian
authorities.
Put in place an administrative penalty regime
for those who are materially non-compliant
with respect to their obligations under the
Financial Transactions Reports Act.
There should be provisions clarifying
that offences by a cash dealer in specifc
contravention of Australias anti-money
laundering legislation can result in the
cancellation of a licence.
Designated non-fnancial businesses and
professions should be compelled to pay
special attention to transactions involving
certain countries, make their fndings available
in writing, and apply appropriate counter-
measures.
Australia should introduce administrative
sanctions for breaches of anti-money
laundering requirements by all designated
non-fnancial businesses and professions.
The International Monetary Fund also conducted an
assessment of Australias fnancial sector, releasing
their report in October 2006. The assessment
examined Australias implementation of the Basel
Core Principles for Effective Banking Supervision.
The assessment found that Australia was Materially
non-compliant with Principle 15 dealing with
prevention of use of the banks by criminal elements.
The Principle states: Banking supervisors must
determine that banks have adequate policies,
practices and procedures in place, including strict
know-your-customer rules that promote high ethical
and professional standards in the fnancial sector
and prevent the bank being used, intentionally or
unintentionally, by criminal elements.
5
In response to the FATF fndings the Australian
Government stated that it had enhanced the ability
5 International Monetary Fund, Monetary and Financial Systems
Department, Financial Sector Assessment Program, Australia.
Detailed Assessment of Observance of Standards and Codes,
International Monetary Fund, Washington DC, October 2006, pp.
28-30.
1
At the time of writing, the Australian Government
continues in its efforts to address the issued raised
by the FATF. There is still work being undertaken
on addressing the issues raised around designated
non-fnancial businesses and professions and public
consultation has commenced.
A report by KPMG indicated that 70% of banks in
Australia had increased the number of suspicious
activity reports they make to the regulator, AUSTRAC,
since 2004 and 42% of banks say the number of
reports have increased substantially
6
.
AUSTRAC has also established 49 agreements
with international counterparts for the exchange
of fnancial intelligence
7
. For example, AUSTRAC
established a Memorandum of Understanding with
its equivalent in Indonesia, PPATK, in February 2004
and continues to provide technical assistance to
the PPATK
8
. The Australian Government committed
$10 million to be spent between 2004 and 2008 on
the South East Asian Counterterrorism Technical
Assistance and Training Program with Brunei,
Cambodia, Indonesia, Laos, Malaysia, Burma, the
Philippines, Singapore, Thailand and Vietnam. Part
of the program consists of AUSTRAC providing
mentoring, IT advice and training programs to
the countries involved in the program with regard
to countering money laundering and fnancing of
terrorism.
7.2 OECD assessment of Australia
According to an OECD report released in January
2006, Australian authorities demonstrated a strong
commitment to combating foreign bribery. However,
the report concluded that Australia needs to toughen
its stand on companies paying bribes or facilitation
payments to foreign governments.
The report stated that the Australian Tax Offce (ATO)
should implement better systems for detecting foreign
bribery transactions when conducting tax audits.
The OECDs bribery group urged that corporate
fnes for bribery be increased from the current
maximum of A$330,000
9
, and that sanctions such as
6 KPMG Australia Media Release, Bank staff are best defence
against $1 trillion money laundering threat, http://www.kpmg.com.
au, 9 July 2007.
7 AUSTRAC media release, Australias fnancial intelligence
network expanded following agreements with the Cayman Islands,
Sweden and Japan, http://www.austrac.gov.au/13jun07.html,
13 June 2007 and Australian Government Attorney-Generals
Department, A better mutual assistance system. A review of
Australias mutual assistance law and practice, http://www.ag.gov.
au/extraditionandma, 2006, p. 37.
8 AUSTRAC media release, AUSTRAC works with Indonesia to
combat money laundering and the fnancing of terrorism, 7 April
2007.
9 OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
Business Transactions and the 1997 Recommendation on
disqualifying for government contracts, be brought
against companies found to have bribed foreign
offcials. The report recommended that the Australian
government change whistleblower legislation in order
to protect public servants who report suspicions
of foreign bribery and that it consider introducing
stronger whistleblower protections for private sector
employees
10
. The OECD report also said that
AusAID should ban bribery in the contracts and sub-
contracts it uses to supply aid
11
.
The Australian Government has not yet responded to
the OECD report and its formal response is scheduled
for early 2008.
It should be noted that the Criminal Code Amendment
(Bribery of Foreign Public Offcials) Act 1999 makes
it a criminal offence to bribe a foreign public offcial,
whether the offence occurs inside or outside of
Australia. Organisations and individuals can be
charged under Australian law on foreign bribery if they
have done the following:
Intentionally, knowingly or recklessly
committed the offence;
Expressly, tacitly or implicitly authorised or
permitted the payment of a bribe;
Existed with a corporate culture that directed,
encouraged, tolerated or led to non-
compliance with the law; and
Failed to create and maintain a corporate
culture that required compliance with the law.
Under Australias foreign bribery law, individuals can
be held criminally responsible for failing to create and
maintain a culture that requires compliance with the
law. It signifcantly extends the scope of corporate
criminal responsibility beyond the position of common
law. Likewise, an offence can be committed without
a bribe being actually paid offering or promising
a corrupt beneft (including non-monetary and
intangible inducements) in contravention of the law is
suffcient. This law also covers bribes paid or offered
through intermediaries
12
.
7.3 Australian Wheat Board
bribery scandal
The AWB scandal meant that Australia slipped to
third place in the 2006 Transparency International
Bribe Payers Index, which ranks countries whose
businesses are perceived to be least likely to pay
Combating Bribery in International Business Transactions, 4
January 2006.
http://www.oecd.org/dataoecd/57/42/35937659.pdf
0 Cited in Jennifer Sexton, Foreign bribes claimed off tax, The
Australian, 17 January 2006
AAP, Bribes claimed back on tax, The Age, 7 January 2006
2 Gerrie Lenting and Peter Kim, Taking corruption seriously,
KPMG Forensic Insight, Issue 10, May 2007, pp. 13-14.
z
bribes in their export markets. Previously, Australia
had ranked as the country whose businesses were
the least likely in the world to pay bribes.
At the start of May 2006, in the wake of the AWB
scandal, the Australian Taxation Offce announced
that it would scrutinise Australian businesses for
facilitation payments made on international deals.
It has been alleged that AWB made $300 million in
facilitation payments to the Alia trucking company,
which were later transferred to Saddam Husseins
regime. It is further alleged that AWB claimed income
tax deductions for the $300 million in company
expenses.
In December 2006, the Australian Taxation Offce
issued guidelines for its auditors to detect bribes
in payments that companies make in developing
countries. The guidelines are based on OECD
standards and will require companies to record
information such as the amount paid, the identity of
the foreign public offcial who was paid and details of
what they were paying for
13
.
On 3 May 2007, the then Attorney General announced
the Australian Governments response to Report
of the Inquiry into Certain Australian Companies
in relation to the UN Oil-for-Food programme by
Commissioner Terence Cole QC. As part of its
response the Attorney General announced that the
Australian Government will:
amend the Income Tax Assessment Act 1997
to align the defnition of facilitation payments
to the defnition in the Criminal Code to
allow deductibility only for minor facilitation
payments; and
amend Division 70 (Foreign Bribery) of the
Criminal Code to clarify that the defence in
section 70.3 against the charge of foreign
bribery applies only where the law of the
foreign country states that the advantage in
question is permitted or required, and that the
offence can be made out regardless of the
results of payment or the alleged necessity
of the payment. The Australian Government
would therefore amend the corresponding
provision of the Income Tax Assessment Act
1997.
The then Attorney General also tasked the Australian
Law Reform Commission (ALRC) on 30 November
2006 to investigate legal professional privilege
as it relates to the activities of Commonwealth
investigatory agencies. The relevance to corruption
in developing countries is the issue of Australian
companies that may attempt to misuse legal
3 Elizabeth Kazi, Bribes code sets frms on paper chase, The
Australian Financial Review, 14 December 2006.
6c
8
CcncIusicn
While lecturing developing countries about
corruption, wealthy countries often play a role in
fostering, rewarding and benefting from corruption in
developing countries. Eliminating corruption globally
will require signifcant effort by all countries. It will
not be assisted by withholding aid from developing
countries. In fact withholding aid is likely to increase
corruption. Rather aid needs to targeted in ways that
does not assist corruption and supports parts of
society that are seeking to tackle corruption.
The effort to eliminate corruption will need to include:
Building a global culture to respect basic
human rights;
A global effort to address tax competition, tax
havens and tax evasion;
Wealthy countries being willing to return funds
looted from developing countries;
Wealthy countries being willing to punish
bribery by companies and citizens that
operate from their country; and
A willingness to cancel odious debts, to
discourage those that would make corrupt
loans
Compared to many other wealthy countries, Australia
has taken welcome steps against corruption. The
Australian Government has made commendable
efforts to tighten up domestic law to prevent money
laundering and fnancing of terrorism. However, it
remains to be seen in practice if the steps taken are
suffcient to prevent Australians from participating in
and benefting from corruption in developing countries
and then being able to keep their ill-gotten gains in
Australia. Australias aid program also contains a
number of positive and well-thought through elements
to combat corruption and promote good governance
in countries that receive aid from Australia.
However, there are black marks on Australias
commitment to dealing with corruption, with Iraq
being the most prominent recent example. The
Australian Government has been willing to look the
other way with regard to many cases of alleged
human rights abuse in Iraq committed by US-led
forces and as Iraqis were cheated out of billions